Here’s a great idea: Let’s create a policy that shuts down our ability to sell stuff to our best customer. Then we’ll borrow money from that customer and use it to pay the people who produce the stuff we can no longer sell. So, instead of a simple sales transaction, we have a deficit situation, a glut of product and producers dependent on the government to stay in business.
That, in a nutshell, is the ongoing trade war that President Donald Trump just escalated with new threats to tax everything made in China and imported into the U.S. at 10%. That is, everything not already taxed at 25%. China, predictably, says it will retaliate and, since a big chunk of everything China buys from the U.S. is agricultural products, that’s sure to hit farmers again.
The borrowed money so far is standing at $28 billion — $12 billion from the first and second rounds of payments last year and $16 billion due to be paid out this year. It calls into question how long it will be before other businesses damaged by trade policy begin to demand their reparations. It’s only fair to ask why farmers and not manufacturers are hit by huge increases to costs as a result of a 25% tax on their supply chain.
The main market for U.S. soybean and sorghum exports has already been decimated by the year-long conflict that was supposed to be “very easy to win” but has proven to be anything but. Far from increasing their purchases of U.S. agricultural products, China has been buying from Argentina, Brazil and Russia.
The rules have been rolled out, and soon farmers can begin applying for a third round of subsidies to help them weather the hardship until a new, much better trade deal is negotiated. That, at least, has been the story so far — this is just short-term pain that will bring long-term gain.
That, however, is looking less and less likely as the battle escalates. Even farmers initially supportive of the effort are getting more and more nervous about how hard it will be to regain customers who have found other suppliers and just what the upper limit of “short term” will prove to be.
Meanwhile, there has been no progress on new trade deals to replace the Trans-Pacific Partnership, and the new U.S.-Mexico-Canada Agreement has not been ratified by either the U.S. or Canada.
Trump took to the airwaves Aug. 2 to tout a deal to sell more duty-free U.S. beef to the European Union, but it is important to note that the 46% increase in imports (which is supposed to be a 90% increase over seven years) will be only for hormone-free beef. The dispute that has been raging since 1980 over beef treated with growth implants rages on.
It's also significant that sales to the EU amounted to only 3.5% of beef exports in 2018 and are down about 10% in value so far in 2019. U.S. beef, by value, amounts to about 9% of what the EU imports. While it is always good to see any market growth, this agreement certainly is no cause to throw a parade.
Meanwhile, grain prices across the board were down. Again. The only cure for that is demand. And demand requires customers.